What you should know about using multiple credit products at once

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You may have heard the wordsBuy now, pay later(BNPL) in the news or you saw the BNPL option when you hit the checkout page after your online shopping spree. BNPL services, which are basically point of sale loansIn the past year, it gained significant traction, with big names like Amazon partnering with Confirms (Popular BNPL Provider) and Mastercard announces the launch of its BNPL service.

Why has BNPL exploded in popularity? Researchers at TransUnion They looked at nearly 4.5 million point-of-sale applicants and found that the main reasons people want to use BNPL is that their payments are spread over time and ease of use.

With BNPL, a $200 purchase can be split into four (potentially interest-free) payments of $50, paid every two weeks. Moreover, most of the popular retailers have an option built into their websites, so that customers can be approved immediately for a loan as many of them do not need credit checks.

The study also found that applicants were more likely to have a higher number of cards, such as credit cards and retail cards, than the general population.

“From this research, it appears that these consumers are more credit active and more credit hungry,” says Liz Bagel, Vice President of Consumer Lending at TransUnion. “So I think these are the consumers who want to fund their retail purchases who also want to fund other parts of their lives.”

In the study, POS loan applicants had similar Credit Usage Ratio across risk levels. In other words, POS applicants were looking for these loans despite being able to make purchases on their credit card.

Should consumers use point of sale loans when they already have credit cards? How can “credit-hungry” consumers balance multiple credit options?

We spoke with Kate Mielitz, associate professor of family financial planning at Oklahoma State University, about how consumers manage credit cards and BNPL loans.

How to Manage Credit Cards and BNPL Loans

When you reconcile regular credit card payments in addition to the fortnightly installment payments for a point-of-sale loan, it can be difficult to keep track of all your expenses. You’ll need to know the due dates for all your payments and set up automatic payment to make sure you don’t miss any payments and incur late fees or high interest rates.

While some BNPL providers do not charge interest on their POS loans, others, such as Confirms, may be up to 30%. Furthermore, for a 0% interest rate loan, you may end up paying significant late fees: Postpaid They charge $8 or 25% of the transaction, whichever is less.

When it comes to your credit card, it doesn’t make Minimum Payment Before the grace period expires may result in a late fee of up to $40. You will also accrue interest if you do not make the full payment. If you are not on time to make both your BNPL loan and credit card payments, you may end up paying more late fees and interest than you did for your initial purchases.

The other thing you want to consider is whether buying with a BNPL loan fits your long-term budget.

BNPL delivers instant gratification to consumers. You don’t need to have enough money to cover the cost of a pair of high-heeled shoes or an expensive exercise bike. Instead, you will receive the product immediately (as long as you have enough for a down payment), regardless of whether you can actually Bearing or not believe.

Mielitz suggests that customers refrain from buying with a BNPL loan that they cannot afford up front. If you don’t have enough money in your checking account to cover the cost, it’s best to avoid buying if you can.

Finally, you should compare and contrast the pros and cons of using a file POS loan vs credit card to finance the purchase. If you are looking to build your credit score, you better do it Choose a credit card Because many BNPL providers don’t report to credit bureaus, Melitz says.

While on-time payments for your POS loans should help your score, they can It actually ends up hurting him. By opening a new POS loan, you are reducing the average lifespan of your credit history which lowers your credit score.

With credit cards, you also have a chance to reap more rewards. The Chase Sapphire Preferred® Card They currently offer a welcome bonus of 100,000 points, which is $1,250 if redeemed for travel, if you spend $4,000 within three months of opening the account. While some providers like Klarna have Rewards ProgramsYou are likely to earn more money with a credit card Welcome Bonuses and the Cashback and/or the points they offer to spend.

Chase Sapphire Preferred® Card

  • Rewards

    $50 Ultimate Rewards hotel credit annually, 5x points on travel purchased through Chase Ultimate Rewards®, 3x points on food, 2X points on all other travel purchases, 5x points on Lyft flights through March 2022, and 1X Points on all other purchases

  • welcome bonus

    Earn 100,000 reward points after spending $4,000 on purchases in the first 3 months of account opening

  • Annual fee

  • April Introduction

  • normal april

    15.99% to 22.99% variable on purchases and balance transfers

  • Balance Transfer Fee

    Either $5 or 5% of the amount of each transfer, whichever is greater

  • Foreign Transaction Fee

  • Credit required

If you are attracted to the longer repayment period and 0% interest rates offered on some BNPL loans, you can also consider getting 0% APR Credit Card Some even have welcome bonuses and bonuses. These cards have an introductory period, usually 12-20 months, during which cardholders will not have to pay interest on their revolving balance.

The Wells Fargo Active CashSM Card One of these options. The Active Cash Card has an introductory 15 months of 0% off on new purchases and eligible balance transfers (afterwards, a variable APR of 14.49% – 24.99%) and comes with a $200 cash back reward after spending $1,000 during the three months The first is to open the account. With this card, you’ll get rewards like 2% cashback on all eligible purchases and take advantage of an introductory 0% APR.

Wells Fargo Active Cash℠

  • Rewards

    2% unlimited cash back rewards on purchases

  • welcome bonus

    $200 cash back bonus after spending $1,000 on purchases in the first 3 months of account opening

  • Annual fee

  • April Introduction

    0% APR on purchases and eligible balance transfers for the first 15 months of account opening

  • normal april

    14.99% to 24.99% variable on purchases and balance transfers

  • Balance Transfer Fee

    3% introductory fee ($5 minimum) for 120 days of account opening, then up to 5% ($5 minimum)

  • Foreign Transaction Fee

  • Credit required

minimum

Editorial note: The opinions, analyses, reviews or recommendations in this article are those of the selected editorial board alone, and have not been reviewed, approved or otherwise endorsed by any third party.

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